Champions League success ‘critical’ for soccer teams’ finance

Arjun Kharpal, special to CNBC.com

Friday, 30 Aug 2013 | 10:16 AM ETCNBC.com

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The UEFA Champions League is the pinnacle of club soccer, with teams battling to become the kings of Europe. But there is more at stake than a shiny trophy. The tournament is critical for a club's financial success and poor performance could have a big impact on a team's economic health, according to analysts.

"Participating in the Champions League is hugely important for clubs. They get the direct financial benefit from participating, from central distribution from UEFA (the Union of European Football Associations), but also the home matches and match day revenues you generate from that," Austin Houlihan, senior consultant in Deloitte's sports business group, told CNBC.

Thirty-two of the world's best-known soccer clubs, including Barcelona, Real Madrid, AC Milan, Arsenal and Chelsea, will participate in this year's tournament, which starts on September 17. The tournament draw took place last Thursday, with the teams being arranged into playing groups.

UEFA, the governing body of European football, has set aside 910 million euros ($1.2 billion) to distribute to the participating clubs, with the winner receiving 10.5 million euros. Clubs in the Champions League will also get cash from match day ticket sales and other related commercial ventures.

In total, revenue from the tournament can make up around 10 to 15 per cent of a club's annual revenue. Last year, England's Manchester United bagged 35.5 million euros from the tournament, while the winner, Bayern Munich, took home 55 million euros.

David Bick, chairman of Square1 Consulting, told CNBC that revenue from the Champions League constituted "free cash flow and profit", because clubs create their budgets with their domestic league in mind, and any money from pan-European tournaments was a bonus.

Qualification and success in the Champions League was "critical" for a club's finances, Bick said.

"The clubs that qualify for the Champions League get virtually free cash flow and profit. It is critical for teams to do well. If you don't qualify, a whole lot of cash will go missing and it will eradicate their profitability. The top teams cannot afford not to qualify."

For the top teams in Europe, success or failure in the tournament can have a big impact on its ability to attract new talent.

"Doing well in the Champions League is the difference between sides being able to spend 50 million euros in the transfer window or not," Michael Jarman, chief market strategist at H2O Markets, told CNBC.

"If a club doesn't do so well to make the champions league, then 10 or 15 per cent of revenue will go to the wayside, and you don't have the capacity to sign players on increase wages. And if you can't sign players then your side is depleted and you can't compete with other teams, and then it becomes a slippery downward slope from there," he said.

However, Richard Hunter, head of U.K. equities at Hargreaves Lansdown, said there could be a lengthy time lag before failure in the tournament hit a club's bottom line.

"I am surprised how very little effect Champions League success has on a club's finances. If a top team doesn't qualify next year, in the overall scheme of things, it would have minimal impact. Even if it became habitual, it would take a number of years for their brand to come under pressure," he told CNBC.